ON BALANCE VOLUME

DefinitionDefinition

The On Balance Volume indicator was created to track whether or not people’s emotions were consistent with prices.

It is a leading indicator, meaning that it leads stock prices higher or lower.

OBV often gives an early warning or buy signal before anyone knows what’s going on.

Calculation of OBVCalculation of OBV

If a security’s price closed up for the day on 100,000 chares, the OBV is 100,000 for that day.

Likewise, if a security’s close had been negative, the OBV would be –100,000. (No change days are ignored)

OBV results in a picture over a period of time that traces a series of valleys and peaks that often follows the stock’s price.

Key to OBV’s advantageKey to OBV’s advantage

Key to it’s advantage is when it diverges from prices.

If a stock price falls to a new low and the OBV line doesn’t, the indicator is interpreted as positive (Bullish divergence)

If a stock price rises to a new high and the OBV line doesn’t, the interpretation is negative (Bearish divergence)

Ariba, Inc.Ariba, Inc.

The EndThe End